In this edition of the Manatt newsletter, we take a look at several new cases that examine an array of important insurance issues. First, though, we report an important victory for policyholders faced with massive tort liabilities. After over nine years of litigation, Quigley Company, Inc., a subsidiary of Pfizer Inc., won confirmation of its bankruptcy plan in the Bankruptcy Court for the Southern District of New York. Quigley faced over $1 billion in asbestos-related liabilities, and was able to fund a bankruptcy plan through a combination of insurance and contributions from its parent. During the course of the bankruptcy, Pfizer and Quigley won a landmark ruling limiting the standing of a debtor’s insurers to object to the debtor’s bankruptcy plan, and secured hundreds of millions of dollars in insurance to fund Quigley’s plan. See In re Quigley Company, Inc., 391 B.R. 695 (Bankr. S.D.N.Y. 2008).

In the first case examined, MGA Entertainment sought coverage from several umbrella and other insurers for its defense costs in an already dismissed copyright infringement suit stemming from one of several significant lawsuits involving Bratz dolls. MGA scored a partial victory in New York federal court, which granted in part the company’s summary judgment arguments concerning the duty to defend. The court held that the allegations in the underlying complaint – broadly read and construed with reasonable inferences – alleged covered advertising injury claims. Although the court pared down coverage from certain insurers, MGA won defense cost coverage.

Second, the Florida Supreme Court came down strongly on the side of policyholders on a key question of interpretation of ambiguous insurance policy terms. The court announced that “under Florida law applicable to construction of insurance policies, because the policy is ambiguous it must be construed against the insurer and in favor of coverage without resort to consideration of extrinsic evidence.”

Third, an Ohio federal court held that advertising injury coverage that applied to a “publication,” which the policy did not define, applied to recordings of customer calls to a call center that allegedly were shared internally. The insurer argued that internal dissemination did not constitute publication, and further that if it did there was no coverage under a prior publication exclusion. Not so, the court said – each call was new material. Rejecting a number of other arguments from the insurer, the court said the policyholder was entitled to an immediate defense.

Finally, a Pennsylvania appellate court addressed a question of first impression in the state, announcing the options a policyholder has when its insurer offers a defense only subject to a reservation of rights. Recognizing the divergent interests that creates, the court gave policyholders a choice: accept a defense and cede control of settlement to the insurer, or say “no thanks” and maintain control of the underlying litigation, including settlement decisions, and sue the insurer for coverage.